GBP/USD continues to test 1.3550 as US CPI inflation print looms

• GBP/USD found slim gains on Wednesday as markets await the latest inflation update.
• US PPI inflation eased in August, bolstering bets of a Fed rate cut next week.
• US CPI inflation is due on Thursday, and could complicate the Fed's path into further rate cuts.

GBP/USD caught a slim bullish step forward on Wednesday, testing the 1.3550 region for the fourth straight trading day, but thus far remains unable to make any further progress. US Producer Price Index (PPI) inflation eased lower in August, giving even further credence to the market's expectations of a Federal Reserve (Fed) rate cut on September 17.

US PPI business-level inflation eased much faster than expected in August, with core PPI cooling to 2.8% YoY versus the last print of 3.5%. PPI inflation cooling off in these economic environments is hardly surprising: PPI metrics specifically exclude any imported or foreign trade goods entirely, giving a brief snapshot of domestic price pressures in the US.

With the majority of price increases facing consumers at the hands of widespread tariffs, and now the end of the de minimis exemption for small-scale shipping and retailer items, US consumers will bear the brunt of the burden for paying the import fees on cheaper, foreign-made retail goods. US Consumer Price Index (CPI) inflation is due on Thursday, and headline CPI inflation is expected to show yet another uptick to 2.9% for the year ended in August. Core CPI is forecast to hold steady at 3.1% on an annual basis, still holding well above the Fed's 2% inflation target.

According to the CME's FedWatch Tool, rate markets are pricing in over 90% odds that the Fed will deliver a 25 basis-point cut next week.

GBP/USD daily chart